ABILITY TO REPAY AND QUALIFIED MORTGAGE STANDARDS UPDATE
FACTS
The Dodd-Frank Act provides that
The final rule excludes from points and fees loan originator compensation paid by a consumer to a mortgage broker when that payment has already been counted toward the points and fees thresholds as part of the finance charge under § 1026.32(b)(1)(i). The final rule also excludes from points and fees compensation paid by a mortgage broker to an employee of the mortgage broker because that compensation is already included in points and fees as loan originator compensation paid by the consumer or the creditor to the mortgage broker. The final rule excludes from points and fees compensation paid by a creditor to its loan officers. (bureau of consumer financial protection 12 cfr part 1026, docket no. cfpb-2013-0002, 12cfr1026.32, .43)
MORAL
This modification was signed off May 29, effective Jan. 10, 2014. Now you know why your attorney cannot give the answer off the top of his head and has to check. Modifications are still coming forth and before the opinion can be given it has to be checked and then see what if any updates have come out recently. To repeat another way: The amended rule excludes compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee from the calculation of points and fees for purposes of the cap. The amendment does not change the original provisions in the final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.
DELENDERS FILING CLAIMS ON FHA INSURED LOANS MAY FIND THEY ARE THREATENED WITH OR ARE BEING SUED UNDER THE FEDERAL FALSE CLAIMS ACT
FACTS
Federal Housing Administration mortgage lenders are being targeted in claims brought by the government under the federal False Claims Act. FHA’s Direct Endorsement Lender program grants qualified private lenders the authority to endorse mortgages qualified for FHA insurance. This requires the private lenders to review the mortgage applications for compliance with the rules of the Department of Housing and Urban Development.
The Direct Endorsement Lender program requires private lenders to, among other things, conduct certain due diligence for each loan and implement a quality control plan to ensure compliance with HUD rules. The lender must also submit with each loan a certification that the loan complies with applicable law and HUD rules.
Initially the FCA was used as an enforcement tool in United States v. Deutsche Bankfiled in 2011 in federal court in New York. The complaint alleges blatant along with a pattern of repeated mistakes in loan underwriting. The FCA claims in Deutsche Bank focused on alleged failure to comply with quality control requirements, particularly a review of early payment defaults, falsely certifying that individual loans complied with HUD rules and were eligible for FHA insurance, and submitting false annual compliance certifications.
The complaint alleged that this allowed the defendants to wrongfully obtain FHA insurance for ineligible loans that later defaulted and resulted in FHA paying over $368 million in insurance claims. The government sought treble damages and civil penalties under the FCA for current claims totaling well over $1 billion, as well as damages for potential future claims.
In May 2012, the Deutsche Bank defendants admitted liability, and the matter was settled for $202.3 million. In the settlement, Deutsche Bank acknowledged that MortgageIT, one of its subsidiaries, failed to maintain the required quality control program, failed to conduct reviews of early payment defaults, and falsely certified that certain loans were eligible for FHA insurance when they were not.
Next the government brought a similar suit in United States v. Wells Fargo Bank NA. The government brought claims against Wells Fargo under the FCA, the Financial Institution Reform, Recovery and Enforcement Act, and common law for the regular practice of reckless origination and underwriting of its retail FHA loans. Wells Fargo is still in litigation.
The FCA allows for suits by the United States government and whistleblowers. The FCA imposes liability on any person who (1) knowingly presents to the government a false or fraudulent claim for payment or approval; (2) knowingly makes a false record in order to have a false or fraudulent claim paid or approved by the government; or (3) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the government.
The Fraud Enforcement and Recovery Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 changed the FCA. FERA has now focused on frauds by financial institutions. False statements to induce the government to insure loans can result in FCA liability. Any false statement or false claim actionable under the FCA is subject to the requirement of materiality,
Deutsche Bank and Wells Fargo were the first targets. Now the federal government has used the FCA to go after smaller financial institutions. Some of these suits are being brought without any allegation that the underlying loans did not qualify for FHA insurance, but instead are based on allegations of technical and procedural inconsistencies. The government is looking for reasons to bring an FCA claim. (53113wlmsmulin)
MORAL
Have an up-to-date quality control plan. Implement it. Make the reports to management and be sure to follow the 10% rule by doing the audit on 10% to include all loan officers and all third party originators or you may find yourself getting sued. Do not misunderstand, the government is in fact using the FCA to threaten or actually filing against the brokers as well. We can vouchsafe for this fact in that we defend them.
HUD SETTLES CLAIM ALLEGING B OF A AND FANNIE MAE DISCRIMINATED AGAINST HOME OWNER WITH DISABILITIES SEEKING LOAN MODIFICATION
FACTS
HUD announced that it has reached a
The
“People with disabilities should not have to answer unnecessary questions about the nature of their disability when seeking a loan modification,” said Bryan Greene, HUD general deputy assistant secretary for fair housing and equal opportunity. “HUD will continue to take action against lenders that subject persons with disabilities to discriminatory practices.”
According to the complaint, a San Bruno, Calif., woman applied for a loan modification at B of A that would have reduced her interest rate and made it easier for her to pay her mortgage after her disability caused her to miss several months of work. During her extended leave of absence, the woman used her savings to pay her mortgage. Fearing that she would not be able to continue paying her mortgage without a lower interest rate, the woman applied for the loan modification, citing her physical “hardship.”
In responding to her request, a loan officer with the bank asked her to provide documentation relating to her medical condition. The woman provided the loan officer with a letter from her physician, a current medical bill, and a letter from her employer certifying her approved leave of absence due to her disability. Still, the bank denied her application, allegedly telling her that she had not provided sufficient information about the nature of her disability.
Even after the woman provided another letter from her physician and insurance records showing her medical treatment between 2007 and 2011, the bank reportedly denied her modification application and Fannie Mae allegedly stated that her doctor’s letters and other documentation were insufficient to show that she was permanently disabled.
Under the terms of the agreement, B of A will pay the woman $22,449, which includes $19,349 to cover the approximate closing costs on a refinance loan, and agreed to follow HAMP and Fannie Mae’s servicing guidelines. B of A will also provide fair lending training to its newly-hired employees. In addition, Fannie Mae will pay the woman $3,400. (hud 13-087, 6-7-13)
MORAL
Watch what you write to someone seeking a loan modification. It may come back to haunt you.
DO YOU HAVE 50 OR MORE FULL-TIME EMPLOYEES? THEN WATCH OUT FOR “THE AFFORDABLE CARE ACT”
FACTS
If you have 50 or more full-time employees, “The Affordable Care Act” imposes complex rules on you the employer for supplying health insurance in 2014. It is labor intensive and if you need some assistance, let us know. It does require a lot of monitoring, tracking and reporting of data needed to ensure compliance or you can wind up paying serious penalties. You will need to provide medical insurance for the full-time employees or pay a penalty per employee. Full time means someone who works more than 30 hours per week.
The new law takes effect on Jan. 1, 2014, but eligibility will be determined by hours worked this year.
If the employer’s share of the premium on the lowest cost plan does not meet the new affordability threshold, the company will be required to increase its contribution or pay a penalty. Employers could be obliged to buy a higher-level plan or pay a fine if the cheapest insurance they offer does not pay at least 60% of the average medical claims. The number of employees accepting the company plan might also rise because the new law requires most individuals to pay a tax penalty if they do not have insurance.
However, there is the distinct possibility that quite a few employers will elect to pay the penalty rather than provide the insurance. It is $95 or 1% of household income which can be a lot cheaper than paying the employers share of medical insurance premiums. The penalty rises in subsequent years but it still might be cheaper.
Even with part time workers, each employer has to add up their hours in a given month and divide by 120 to get the number of full-time equivalents. This must be done for all twelve months of the year. Then take the average of the 12 months and add that to the number of actual fulltime worker to determine if it comes to the magic number 50.
However, if the employer does not provide any medical insurance, the penalty is $2,000 per worker not counting the first thirty workers.
MORAL
Boy do you need a good computer to clock in and clock out with. If needed we may have a programmer available that can set the program up for you. However, I would have to check. If you are interested let me know. There is no cost to my finding out. If you would like to know more detail on your own go to
CONNECTICUT INCREASES RECORDING FEES IF THE NOMINEE BENEFICIARY IS MERS
FACTS
Effective July 15, the first page recording fee for MERS instruments (other than assignments and lien releases) recorded in Connecticut is increased to $116 (up from $53). These recording fees may be listed on the HUD-1 and collected from the borrower. (per merscorp holdings help desk (gen.stat. 7-34(a)))
MORAL
The state increases the fees to catch lenders for recording a nominee and the nominee (MERS) says pass it on to the borrower via the HUD-1). Isn’t that nice?
NEVADA NOW REQUIRES MORTGAGE BROKERS TO HAVE WRITTEN POLICIES FOR ITS MORTGAGE AGENTS
FACTS
NRS 645B.460 has been amended to require all mortgage brokers to have written policies and procedures for their mortgage agents. No longer may mortgage brokers have oral policies. They must now all be in writing. (nvsb472013)
MORAL
This bill was approved by the Governor on May 21, and became effective the same date. So if you do not have written policies and procedures in place, do it now.
OREGON SUPREME COURT SAYS MERS AS NOMINEE CAN CONDUCT NONJUDICIAL FORECLOSURES
FACTS
Two Oregon Supreme Court decisions state that where MERS is the nominee beneficiary under the mortgage, it may order up the nonjudicial foreclosure.
In the two cases, the court ruled that creditors using MERS don't have to publicly record the ownership history of a trust deed to take advantage of the nonjudicial foreclosure process. The justices also ruled that MERS has the authority to participate in a nonjudicial foreclosure if it has appropriate agreements with the involved lenders and can prove the agency.
The Court did rule that the original lender or its successor is actually the trust deed's beneficiary, even though MERS is listed as such on the loan paperwork. But MERS still can initiate foreclosure proceedings if it can prove that it's acting as an agent for the lender with an interest in the loan. (Niday v. GMAC Mortgage, LLC, et al. (S060655) and Brandrup v. Recontrust Company, N.A., et al. (S060281))
MORAL
This fallows California law and several other states, but not in Federal District Courts and not in the Bankruptcy Courts on the whole.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE. AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.
